Below are extracts of a portion of the RBA Annual Report 2011 - that deals with RBA printed banknotes.

Commercial banks purchase banknotes directly from the Reserve Bank.

Note Printing Australia Limited (NPA) is a wholly owned subsidiary of the Reserve Bank that produces banknote and operates the National Note Processing and Distribution Centre on behalf of the Bank. NPA operates under a charter established by the Reserve Bank Board.

Seigniorage

When commercial banks purchase banknotes from the RBA - they pay the RBA the face value of the note, i.e. they pay $50 of digital money for a note that says $50. The RBA actually buys the banknote from NPA (as described above) for the production cost of the banknote (e.g. 10 cents). The difference between the cost of 10 cents and the income of $50 - is a profit for the RBA.

This profit is called seigniorage and is eventually passed onto the Commonwealth.

When someone goes to the bank and asks for currency – “cash” – in exchange for a cheque, the bank gives him the currency and reduces his chequeing account by the amount of the cheque. Than as the bank needs “cash” itself to meet its depositors’ demands, it gets the cash from the Federal Reserve by having its deposit reduced.

A Primer on Money: Statement by the Committee on Banking and CurrencyHouse of Representatives88th Congress5 August 1964Page 44